9. [2016] 75
taxmann.com 83 (Bangalore – Trib.)
ABB FZ-LLC vs. ITO
A.Y: 2012-13, Date of Order: 28th October, 2016
Facts
The Taxpayer was a company incorporated in and resident in
UAE. The Taxpayer had entered into an agreement with an Indian company for
providing certain services. In consideration, the Taxpayer received certain
fee.
According to the Taxpayer, in absence of a specific article
on FTS in the India-UAE DTAA, income from services is to be classified as
business profit under Article 7. Further, in absence of a PE in India, the fee
is not chargeable to tax in India. The Taxpayer however, did not dispute that,
the receipt was FTS in terms of section 9(1)(vii) of the Act.
AO however, contended that if a DTAA does not have any clause
for taxation of any item of income, such income is to be taxed in accordance
with the Act. Since the Act has a specific provision for taxing FTS, such
specific provision would prevail over the general provision of DTAA.
Accordingly, AO applied provisions of section 9(1)(vii) of the Act and taxed
the fee as FTS. The Dispute resolution panel (DRP) confirmed the view of the
AO.
Held
– If royalty or FTS is derived from regular
business activities of the Taxpayer, it is to be regarded as business income
under the Act as well as DTAA. However, if these items of income are separately
classified, then taxation would be as applicable to that classification.
– Income is derived by the taxpayer from
providing services, which is a regular business activity, and hence such income
from such services is to be classified as business income under the DTAA.
– Absence of a specific provision in the DTAA
is not an omission but an agreement between the two contracting states not to
separately classify such income as FTS. Once the income is classified as
falling within the ambit of other article of the DTAA, thereafter, scope of
assessing such income cannot be expanded by importing classification from the
Act and taxing such income under that classification in the Act.
– Accordingly, in absence of specific Article
dealing with FTS in India-UAE DTAA, the fee received by taxpayer would be
taxable in terms of Article 7 and in absence of a PE of the Taxpayer in India,
such income is not chargeable to tax in India.
– Reliance in this regard can be placed on the
Tribunal decision in the case of IBM India Pvt Ltd vs. DDIT (ITA Nos.489 to
498/Bang/2013), wherein the Tribunal held that even if the payments were
not covered by Article 7, they would be covered under Article 23 (other income)
